GBP USD Tumbles in the Wake of Theresa May?s Brexit Speech

September 22, 2017 - Written by James Fuller

STORY LINK GBP USD Tumbles in the Wake of Theresa May?s Brexit Speech

The Pound US Dollar exchange rate tumbled this afternoon in the wake of UK Prime Minister Theresa May’s Brexit speech, an event that failed to quell investor anxiety regarding Brexit negotiations.

Theresa May’s Calls for two-year 'period of implementation’, GBP Continues to fall

Sterling fell sharply at the end of this trading week as May’s Brexit speech in Florence, Italy, failed to give markets fresh information regarding the UK’s Brexit position.

A great deal of anticipation had built ahead of the speech, with the general expectation being that May would perhaps dislodge the on-going deadlock between the UK and the EU.

Whilst May did confirm that there would be a two-year ‘implementation’ period, there was no direct mention of a figure that the UK would be willing to pay in terms of financial obligations. This disappointed markets, as the ‘divorce bill’ has remained a significant sticking point in negotiations thus far and the possible revelation of a proposed figure was anticipated by many.

Whilst the speech was ultimately upbeat and optimistic regarding the future relationship between the UK and the EU, it was not necessarily enough to make up for the absence of details that the markets were expecting.

There were some notable points contained within, however, even if they did not appease the markets: Regarding the future trading relationship between the two super-powers May insisted that trade disputes would be settled by external courts (neither the EU nor the UK) and on the subject of rights for EU citizens staying within the UK; May guaranteed that they would persist, though under regulation.

US Dollar Hamstrung by Escalating Tensions with North Korea

The US Dollar also experienced its own fair share of problems today, chief amongst them being the latest escalation of tensions with hermit nation North Korea.

North Korea issued a statement late on Thursday night - in response to US President Donald Trump’s speech at the United Nations - threatening an open-air hydrogen bomb test in the Pacific Ocean.

If such a test were to take place the implications would be numerous and severe, with the prospect of a militarised response from the US – nuclear or not – readied and on the table.

Beyond this, Kim Jong Un also issued a first person statement directed specifically at Trump, essentially indicating that he is intent on becoming a nuclear power by any means necessary and that he would be taking the ‘highest level of hard-line countermeasure in history’ towards sanctions and threats made by the western world.

Whilst these exchanges likely remain sabre-rattling, the prospect of North Korea becoming a nuclear-capable nation (with effective long-range delivery systems) is one of extreme concern for its neighbours and the United States, especially considering their long history of human rights abuses.

Ultimately this news drove demand away from the ‘Greenback’, with investors looking instead to safe haven currencies like the Swiss Franc (CHF) in relatively predictable form. This drop did not, however, allow Sterling to take the lead, instead GBP USD remained tumbling in the wake of Theresa May’s comments.

GBP USD Forecast: Volatility Likely on US, UK GDP

Markets will likely be busy digesting Theresa May’s Brexit speech for some time, but there are some other notable releases on the horizon.

Next week will feature consumer confidence figures from the United States, as well as a keynote address from Fed Chair Janet Yellen at the NABE conference. Investors will likely carefully assess the speech for any indication of hawkish, or dovish sentiment from Yellen, especially following the recent announcement of a possible December rate hike and the tapering of the US balance sheet in October.

Beyond this expect US durable goods orders, US GDP and US employment figures on Thursday, along with UK net consumer credit, mortgage approvals and GDP figures on Friday.

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